Durable Goods Orders Rebound, Up Two of Past Three Months

New orders for manufactured durable goods in April increased $7.2 billion or 3.3 percent to $222.6 billion, the U.S. Census Bureau announced Friday. This increase, up two of the last three months, followed a 5.9 percent March decrease. Orders generally increased across the board with only a couple exceptions. Note that durable goods orders can be volatile, and the gains in April generally did not make up for decreases in March. Still, February orders advanced 6.4 percent.

In one positive development, companies invested more in their equipment and other capital goods. Orders for non-defense capital goods excluding aircraft, a key component of the report, advanced 1.2 percent in April after edging up 0.9 percent in March. This doesn't quite reverse the 4.8 percent drop in February, however. Still, it does show that companies might be a bit more optimistic about the future as this shows they are investing more in their businesses. Other details of the report, however, show more of a mixed picture.

Among those categories where a rebound in April only partially offset March dips include primary metals, which inched up 0.5 percent after a drop of 5.8 percent (though this followed a February increase of 10.6 percent). Fabricated metals increased 1.2 percent after a dip of 0.6 percent in March and a larger drop of 4.6 percent in February. Similarly, machinery advanced 1.9 percent, but this followed a decrease of 1.8 percent in March after falling 4.2 percent in February. Materials and equipment are used to make other things, and this is one early indication on the supply chain that can give us a direction manufacturing may be headed. Still, these data are not enough information to draw a definitive forecast.

Companies saw more orders for communications equipment, with a surge of 5.7 percent after a 2.0 percent gain in March, though over the past three months growth in new orders is still negative . The category plunged 12.8 percent in February. However, electrical equipment, including appliances, has been up the past two months, though at a relatively subdued pace. Meanwhile, computers fell 3.7 percent after a 0.2 percent dip in March, following a sizable 9.0 percent gain in February, meaning the category grew over the past three months overall.

The category of motor vehicles continues to be a stronger component, climbing in each of the past three months by decent amounts, and by 1.9 percent in April alone. No doubt this sector is influenced by low interest rates on car loans – courtesy of the actions of the Federal Reserve – along with growing employment and the fact that the average age of cars on the road is at a record high.

Even defense spending was stronger in April after a plunge in March, no doubt related to the sequester. Defense spending and non-defense aircraft, which surged in April after plunging in March, are particularly volatile categories. Thus, durable goods orders are typically also reported excluding transportation as well as defense spending.

Excluding transportation, new orders increased 1.3 percent. This followed a drop of 1.7 percent in March and a smaller dip in February. Transportation equipment, up two of the last three months, led the increase in the headline with an advance of $5.1 billion or 8.1 percent to $67.6 billion. This was led by nondefense aircraft and parts, which increased $1.9 billion. And excluding defense, new orders increased 2.1 percent after a slight decline in March.

Overall, this was a decent report and points to a rebound in manufacturing following a soft spot in February. It points to continued moderate growth, and forward looking indicators, on balance, are positive.